We want SOEs to be financially stable – Gigaba

Johannesburg - The financial stability of SOEs remains a top priority for government, said new Finance Minister Malusi Gigaba.

Gigaba was speaking at a press briefing following Standard & Poor’s (S&P) decision to downgrade South Africa’s sovereign rating from BBB- to BB+, or sub-investment grade. Ratings agency Moody’s subsequently issued a statement that South Africa has been placed on review for a downgrade.

Moody’s currently has South Africa at Baa2, a downgrade to Baa3 would still be one notch above junk status.

READ: Gigaba knew about S&P move to downgrade SA to junk 4 days ago

In its review, S&P pointed out that unrated SOEs such as South African Airways (SAA) and the South African National Road Agency (Sanral) pose a risk to the country’s fiscal outlook.

“We expect guarantee utilisations will reach R500bn in 2020, or 10% of 2017 GDP,” said S&P. Much of the liability is attributed to Eskom, explained S&P, which will require R350bn or 7% of GDP. “We estimate Eskom will have used up to R300bn of this framework by 2020.”

Moody’s also indicated that there were concerns about whether reforms to ensure fiscal and economic strength, some of which linked to SOEs. Moody’s plans to assess progress on these reforms to achieve “transparency, accountability and good governance” in the SOE sector, among other things.

ALSO READ: No need to be despondent after downgrade - Gigaba

Gigaba assured that he would engage with various issues their departments and Treasury has, and will work together with them to “uplift the performance of SOEs financially”. He added: “We want to see SOEs be financially stable, have strong balance sheets.”

Gigaba said that current SOE reforms being undertaken will be supported. “They should be accelerated to address concerns among investors.”

He pointed out that many of the SOEs raise capital in domestic and international markets and it is important to demonstrate to these investors that funding will be paid back.

Limited guarantees

Gigaba added that government has a critical role in supporting SOEs. “Raising government guarantees raises challenge as government guarantees themselves are reaching a limit in terms of our ability to keep on issuing it,” he warned. 

Read Fin24's top stories trending on Twitter:

ZAR/USD
17.04
(-0.04)
ZAR/GBP
21.32
(-0.33)
ZAR/EUR
19.28
(-0.65)
ZAR/AUD
11.88
(-0.37)
ZAR/JPY
0.16
(-0.12)
Gold
1776.88
(+0.10)
Silver
18.21
(+1.18)
Platinum
824.00
(+1.91)
Brent Crude
42.87
(0.00)
Palladium
1911.00
(0.00)
All Share
54761.53
(+0.44)
Top 40
50418.07
(+0.47)
Financial 15
10137.85
(-0.12)
Industrial 25
76318.42
(-0.31)
Resource 10
51042.33
(+1.80)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1634 votes
I am taking a hit, but should be able to recover in the next year
23% - 2145 votes
My finances have been devastated
34% - 3204 votes
It's still too early to know what the full effect will be
25% - 2326 votes
Vote